Portfolio Media. Inc. | 860 Broadway, 6th Floor | New York, NY 10003 | www.law360.com
Phone: +1 646 783 7100 | Fax: +1 646 783 7161 | [email protected]
Is There A Constitutional Right To Sell Beer?
Law360, New York (October 19, 2015, 3:58 PM ET) ­­ Texas, like
many states, has a patchwork of complicated, and often
inconsistent, alcohol regulatory laws. A few years ago, Texas
craft breweries were authorized to sell products to visitors for
on­premises consumption. So, if a visitor to a craft brewery in
Texas wants to enjoy a pint in a taproom, the brewery can sell it
to that visitor provided the pint is consumed on the brewery
premises.
Texas breweries, however, cannot sell their products to visitors
for off­site consumption. Other alcohol manufacturers in Texas
are permitted to sell products to customers for off­site
consumption and this inconsistency is the basis of a recent
lawsuit that was filed by Deep Ellum Brewing Co.
Matthew P. McLaughlin
On Sept. 14, Deep Ellum filed a lawsuit against the Texas Alcohol and Beverage
Commission, claiming the alcohol sales law unconstitutionally discriminates against certain
breweries. Specifically, Deep Ellum argues that Texas impermissibly and unconstitutionally
creates two classes of alcoholic beverage producers: those that can sell their product on­
premises for off­premises consumption and those that cannot do so.
Deep Ellum offers two principal arguments for why certain sections of the Texas Alcoholic
Beverage Code are unconstitutional under the Fourteenth Amendment of the U.S.
Constitution.
First, Deep Ellum argues that the regulatory laws violate the Equal Protection Clause of the
Fourteenth Amendment, which provides that no state shall deny to any person the equal
protection of its laws. The Equal Protection Clause requires the government to treat
similarly situated persons the same, or precludes it from treating one set of persons
differently than others who are similarly situated.
Deep Ellum contends the Texas Alcoholic Beverage Code precludes it from selling its
products on­site for off­site consumption and such preclusion violates the Equal Protection
Clause because it treats breweries different than other alcohol manufacturers.
The Equal Protection Clause is triggered any time a statute treats certain classes of people
differently from others. Courts generally apply one of three standards when examining
statutes that involve the classification of persons or entities.
If a suspect classification or fundamental right is involved, the strict scrutiny standard will
be applied and the action will be struck down unless the government proves that it is
necessary to achieve a compelling interest. If a quasi­suspect classification is involved, the
courts will likely require the government to prove that the action is substantially related to
an important government interest. If any other classification is involved, the action will be
upheld unless the challenger proves that the action is not rationally related to a legitimate
governmental interest.
In the Deep Ellum situation, the U.S. District Court for the Western District of Texas will
apply the rational basis test to the equal protection claim because breweries are not a
suspect or quasi­suspect class. The burden will be on Deep Ellum to prove the purpose
behind classifying breweries differently from other alcohol manufacturers is not legitimate
or that it imposes a burden not rationally related to that purpose.
This is generally a very difficult burden for a plaintiff such as Deep Ellum to overcome
because most governmental action examined under the rational basis standard is upheld
unless it is arbitrary or irrational. The government almost always prevails under a rational
basis standard of review; and while I agree with Deep Ellum’s position, I have little doubt
the government will prevail in this situation as well.
Next, Deep Ellum argues that the Texas Alcoholic Beverage Code violates its substantive
due process rights under the Fourteenth Amendment. Substantive due process protects the
right to pursue legitimate occupations, free from unreasonable government interference,
subject only to regulations that are rationally related to a legitimate government purpose.
Deep Ellum maintains the regulatory statutes denying it the right to sell its products on­site
for off­site consumption, while allowing other alcohol manufacturers to do so, creates an
arbitrary distinction that is unreasonable and has no relationship, rational or otherwise, to a
valid government interest.
Courts have generally applied two tests to determine violations of substantive due process.
The nature of the violation determines which test is applied to a particular set of facts.
Under the first test, a plaintiff must demonstrate a deprivation of an identified liberty or
property interest protected by the Fourteenth Amendment. Under the second test, a plaintiff
is not required to prove the deprivation of a specific liberty or property interest, but,
rather, he must prove that the conduct of the state somehow “shocks the conscience.”
If a statute is involved in a particular situation, then the deprivation of an identified liberty
or property interests test is applied to that particular set of facts. If it is a governmental
action situation, then the shocks the conscience test is applied to the particular set of facts.
The Deep Ellum situation involves the Texas Alcoholic Beverage Code, so the U.S. District
Court for the Western District of Texas should analyze whether the Texas Alcoholic
Beverage Code deprives Deep Ellum of an identified liberty under the Fourteenth
Amendment. Substantive due process asks the question of whether the deprivation of a
person’s life, liberty or property is justified by a sufficient government purpose.
Deep Ellum must first prove there has been a deprivation. Second, Deep Ellum must prove
that it was of life, liberty or property. And finally, Deep Ellum must demonstrate that the
state of Texas did not have adequate justification for its actions. So, if the Texas Alcoholic
Beverage Code is so arbitrary and capricious as to be irrational, the infringement on a
constitutionally protected interest may violate substantive due process rights.
Deep Ellum alleges in its complaint that it is being deprived of its right to pursue a business
interest, a protected property interest under the Fourteenth Amendment. Naturally, the
question becomes whether the inability to sell of Deep Ellum to sell its products for off­site
consumption is a business interest independent of its ability to manufacture and sell beer in
general. If it is, the analysis becomes whether the state of Texas is justified in prohibiting
such.
I am not certain that the sale of beer for off­site consumption is a severable business
interest independent from the right to manufacture and sell beer; but, even if it is, it
probably gets scrutinized under the rational basis standard and will be a very difficult
burden for Deep Ellum to overcome.
As the U.S. Supreme Court aptly stated in Nebbia v. New York in 1934: "The Constitution
does not guarantee the unrestricted privilege to engage in a business or to conduct it as
one pleases. Certain kinds of business may be prohibited; and the right to conduct a
business, or to pursue a calling, may be conditioned. Statutes prescribing the terms upon
which those conducting certain businesses may contract, or imposing terms if they do enter
into agreements, are within the State’s competency."
In the end, I predict that the state of Texas probably prevails on the substantive due
process argument. Notwithstanding the merit of the case, since the late 1930s, the
Supreme Court has dramatically recoiled from intervening in economic­oriented substantive
due process cases. Courts have become overly deferential to state regulation of economic
matters, relying on a minimal rational basis to support such.
In a statement issued by Deep Ellum on its website, the company said: “Texas allows every
other alcoholic beverage manufacturer to do just that, wineries, distilleries and even
brewpubs are allowed to sell their products directly to the end consumer for off­premises
consumption. Microbreweries cannot. ... How is this prohibition against microbreweries
protecting the welfare, health, peace, temperance or safety of the people of Texas? Long
story short, it isn’t.”
As someone that represents alcohol manufacturers, I completely agree with Deep Ellum’s
position. And while there may be very little constitutional basis for the claims Deep Ellum
makes in its lawsuit, this lawsuit does further enlighten the emerging conversation that
many of our state alcohol regulatory laws are dated, inconsistent and in need of
modernization.
It will be interesting to see how this case unfolds and whether the judge believes the Texas
Alcoholic Beverage Code violates the Fourteenth Amendment to the U.S. Constitution. It will
also be interesting to see whether breweries in other states that have similarly prohibitive
laws file suit making analogous constitutional arguments.
—By Matthew P. McLaughlin, Baker Donelson Bearman Caldwell & Berkowitz PC
Matthew McLaughlin is of counsel in Baker Donelson Bearman Caldwell &
Berkowitz's Jackson, Mississippi, office, where he is chairman of the firm's craft brewery
and craft distillery industry focus group.
The opinions expressed are those of the author(s) and do not necessarily reflect the views
of the firm, its clients, or Portfolio Media Inc., or any of its or their respective affiliates.
This article is for general information purposes and is not intended to be and should not be
taken as legal advice.
All Content © 2003­2015, Portfolio Media, Inc.